Navigating The Winter of 22’
With a looming recession, it’s no secret that many in the crypto space are preparing for a lengthy crypto winter. Many projects grew too quickly during the recent bull market, and are now feeling the repercussions as mass layoffs and liquidations set in.
We find ourselves amid a bear market that feels different to the last ‘crash’ in 2020, or any of the other cycles. Don’t get us wrong, we certainly understand that Bitcoin has seen 80% and 90% drawdowns a number of times in its history… but ‘this time is different’.
The Flash Crash Of 2020
The flash crash in 2020 was short lived, and only lasted 30 days from the February peak to the March bottom where Bitcoin’s price fell around 65%. Amid fears of an emerging global pandemic, the Fed poured nearly 10 Trillion USD into the market, prompting the price of Bitcoin to rise 200% over the following 6 months, and ultimately rose from the COVID lows to Bitcoin’s all time highs in late 2021. Not to mention lockdowns and stimulus checks that provided the breeding grounds for millennial day-traders and ‘Robinhood warriors’ to thrive in up-only market conditions.
The Winter Of 22’
Fast forward to 2022, we are now over half a year into a downtrend which has seen a decline of approximately 75% from November 2021 highs to the June 2022 lows.
What’s different this time is that there are many macroeconomic factors at play which are affecting all markets. Ongoing war in Europe, the aftermath of pandemic related lockdowns, a hawkish Fed, increased interest rates, and many other global complexities have added to the overall market concern.
It’s also important to note the amount of over-leverage in the system…
Somewhere between DeFi and centralised players – a domino-like chain reaction can be traced from recent market collapses such as Terra to larger funds and lenders that have faced issues of over-lending and excessive cross collateralization, resulting in forced selling.
Large amounts of dollar denominated agreements were stacked in layers over the top of one another and tied to fixed amounts of crypto collateral. Interestingly enough, the borrowed dollars often found their way back into the crypto market allowing even further stacked leverage which fell like a house of cards in rough market conditions.
This isn’t to say that the market won’t recover or bounce back with time – that’s not for us to determine or try to pick the timing, but what is apparent is that we are weathering rough and uncharted waters, but with time as all cycles have proven, the next chapter will begin anew.
Do Your Research
To those new to the crypto industry’s hype and ‘to-the-moon’ culture, this could be a concerning time for some, but to market veterans and institutional players, this is seen as all part of the bigger picture and a great time to build.
At Think10, we’re committed to providing forward-thinking entrepreneurs with the support that you need for long-term success throughout all phases of the market. We take an informed and reasonable approach to investment, supporting all stages of start-up growth and always thinking ten steps ahead. If you want to learn more about the nature of crypto markets, contact us today.